Do you have to claim malpractice settlements in your taxes?

If I get a settlement from my malpractice lawsuit, do I have to claim my "winnings" when I file my taxes?
Lex: Sorry. I didn't know what its called. "the moneys that you are awarded"? I don't know? Its not like I have lawsuits all the time and know all the lingo.

AlliCat
unfortunately yes

Lex
Yes. "Winnings." *Yeesh* What a way to look at it. Like a jackpot.

bostonianinmo
Settlements for physical injury or illness are not taxable. However if any portion is earmarked as lost wages, interest or punitive damages, those portions are taxable as ordinary income in the year you receive them.

erehwon
No, all monies awarded by courts are not labeled as income and do not have to reported as such.

Flawless02_97
Yes, depends on the award. Usually Personal injury and physical sickness awards can be excluded. Punitive damages though are. Please read the following publication 4345, http://www.irs.gov/pub/irs-pdf/p4345.pdf. This gives you a good summary.

will_work_for_trump
Since it is a settlement, your attorney may have some control over how the settlement is worded. You should see a tax professional to see if the settlement could be structured as non-taxable. It may save you a lot of money.

Jim Kirby, CPA

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